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10th Circuit Holds Trust Failed For No Trust Appointed Successor.
Posted by: Melville Johnson, P.C.
May 19, 2008
Topic: Trust, Will, and Probate Litigation
The Law Firm of Melville Johnson, P.C. can provide representation in matters involving Estates and Trusts:
In Butt v. Bank of America, 477 F.3d 1171 (C.A. 10, Feb. 22, 2007), the court determined that the trust failed upon death of original trustee as no designation of successor in trust was appointed. The Plaintiff, beneficiary of a trust, brought a lawsuit against the Defendant alleging that the Defendant breached its fiduciary duty as the successor trustee. The district court found in favor of the Defendant. The Plaintiff appealed the decision. The attorney's with Melville Johnson, P.C. are experienced with representing similar Plaintiffs in Estates and Trusts matters.
C. Fredrick Luthy, Paul Butt, Sr., and E.T. Buckley purchased an oil and gas lease in the state of New Mexico. Although each owned a one-third interest in the lease, New Mexico law dictated that the lease could only be issued in one person's name. The lease was issued in Mr. Luthy's name and he placed the lease in a trust. Mr. Luthy was named as trustee and was given absolute control over the lease. The trust also provided that each of the three original owners of the lease were the beneficiaries and would receive periodic disbursements from the trust. The trust document did not identify a successor trustee or a method to select one.
After a number of years, all three of the beneficiaries died. Mr. Luthy's interest in the oil and gas lease trust was included in his testamentary trust with Bank of America named as trustee. Where previously Mr. Luthy had handled all negotiations concerning the lease, after his death and all of the interest holders began to be involved in the lease transactions.
Mr. Butt, Jr. grew to believe that Bank of America was not acting in his best interest, so he filed a Petition for Accounting and Other Relief, alleging that the bank was the successor trustee to Mr. Luthy. Mr. Butt later amended his complaint to allege breach of contract and breach of fiduciary duty. The district court held that while the trust continued after Mr. Luthy's death, the bank had not been appointed trustee and therefore did not owe a fiduciary duty to the beneficiaries of the trust and their successors. Mr. Butt, Jr. appealed.
The Tenth Circuit Court of Appeals agreed that the bank did not owe a fiduciary duty to the other interest holders, but concluded that this was because the trust failed upon Mr. Luthy's death. The court reasoned that the trust powers were personal to Mr. Luthy and were not intended to be exercised by anyone else. The court based this decision on Restatement (Third) of Trusts § 31 cmt.b (2003) which states that if a trustee's power is one that only he or she can exercise, that power will not pass to a substituted trustee. However, the court noted the possibility of a constructive trust as regarded two of the transactions involving Bank of America, and ordered the case remanded for consideration of that issue.
The information in this article was primarily taken from The Judicial View, A Publication of Vianello Forensic Consulting, LLC
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